Effect of GST on Car Prices in India

Impact of GST on Indian Car Industry | Effect of GST on Car Prices in India

Impact of GST on cars was a huge positive move in overall terms. Implementation of GST not just helped government simplify tax structures but on the same time, helped consumers gain happiness with considerable changes in pricing on various products.

When it comes to cars, GST had positive effects in basic segments while clearly visible changes were seen in higher segment. Understanding the impact first demands the knowledge of segmentation of cars in India. We will first let you know how government divides cars that are driven all around the country.

Car segmentation by Government of India

Four different segment of cars are available in our country. These are small cars, mid-size cars, SUVs and luxury cars. The small car segment is further divided into two segments that can be classified on the basis of the engine.

Petrol cars with length less than 4 meters and engine smaller than 1.2L falls in the first sub-segment while Diesel cars with same length clause and engine less than 1.5 liter fall in the second sub-segment. SUVs include cars which are more than 4 meter in length, have bigger engine than 1.5L and ground clearance higher than 170mm.

Luxury cars are those which simply does not have the ground clearance clause and rest all remains the same as SUVs. The small cars currently attract a tax rate of 29 percent for petrol and 31 for diesel engines. After GST, the value remains 28 percent plus additional cess of 1 percent on petrol and 3 percent on diesel cars.

This counts to the same value and hence, no major change in price will be was seen in this small car segment. The change in ex-showroom price of small cars in Delhi was around just INR 1,000 while states where high octroi was charged saw a dip in price of around INR 10,000-15,000 or more. The same trend was seen in mid size cars as they even were free from the additional charges in most states. The difference was even bigger in this case as they had much bigger ex-factory price tags.

SUVs are cheaper after implementation of GST in India

SUVs were taxed at 55 percent before GST. This number fell straight to 43 percent after the implementation of GST. This has made cars cheaper by a considerable margin and thus, most luxury brands will see an increase in their overall sales in the coming months. Isuzu recently slashed the price of their recently launched MU-X by INR 1.50 lakhs in India. Even Toyota and Ford are offering around INR 2-3 lakh off from their Fortuner and Endeavour.

Luxury cars get huge price cuts with effect from July 1, 2017

Luxury cars were the highest taxed segment of cars and now, they even fall under the same 43 percent GST slab. This resulted in huge price cuts across all manufacturers, offering up to 4 lakh of price cut for a car that cost around INR 50 lakh. All 3 German luxury car brands: Mercedes, Audi, and BMW have announced price cut in almost all models and passed the benefit of GST to the customers. The first session of price cuts were temporary while actual prices were updated on July 1, 2017.